Lyons, SA, Has Identified the Following Overhead Costs and Activity Drivers

question 4

Essay

Lyons, SA., has identified the following overhead costs and activity drivers for next year: $$\begin{array} { l c l c } \text { Overhead Item } & \text { Expected Cost } & \text { Activity Driver } & \text { Expected Qty. } \\\text { Setup costs } & £ 150,000 & \text { Number of setups } & 1,200 \\\text { Ordering costs } & 40,000 & \text { Number of orders } & 10,000 \\\text { Maintenance } & 200,000 & \text { Machine hours } & 16,000 \\\text { Power } & 20,000 & \text { Kilowatt hours } & 100,000\end{array}$$ The following are two of the jobs completed during the year: $\begin{array}{lll}&\underline{\text { Job XX}} &\underline{\text { Job YY} }\\\text { Direct materials } & £ 2,250 & £ 2,500 \\\text { Direct labour } & 3,000 & 1,875 \\\text { Units completed } & 375 & 300 \\\text { Direct labour hours } & 90 & 110 \\\text { Number of setups } & 6 & 8 \\\text { Number of orders } & 8 & 15 \\\text { Machine hours } & 180 & 150 \\\text { Kilowatt hours } & 90 & 120\end{array}$
The company's normal activity is 20,000 direct labour hours.
a.Determine the unit cost for each job using direct labour hours to apply overhead.
b.Determine the unit cost for each job using the four activity drivers. (Round amounts to 2 decimal places.)
c.Which method produces the more accurate cost assignment? Why?

---

Definitions:

Direct Materials

Raw materials that are directly traceable and integral to the finished product.

Flexible Budget

Flexible budget is an adjustable budget that changes or scales according to the actual level of activity or volume achieved, providing more accurate budgeting than static budgets.

Activity Level

refers to the volume of production or operations an entity achieves in a specific period, often impacting costs and resource allocation.

Revenue Variance

The difference between actual revenue and budgeted or forecasted revenue.